Foreign Relations of the United States, 1981–1988, Volume XXXVIII, International Economic Development; International Debt; Foreign Assistance

372. Minutes of an Economic Policy Council Meeting¹

Washington, December 5, 1986, 10 a.m.

ATTENDEES

• Messrs. Baker, Lyng, Herrington, Yeutter, Miller, Darman, Sprinkel, Kingon, McAllister, Whitfield, Amstutz, Myers, Smart, Stucky, Tracy, and Wallis

[Omitted here is discussion of the report of the Strike Force on Trade.]

2. Report of the Working Group on Sugar

Under Secretary Amstutz explained that since 1985 the President is required to use all his authorities to ensure that the sugar program operates without cost. He explained that the only tool available for accomplishing this objective is to limit imports. He stated that the Working Group has calculated that the imports will have to be reduced from 1.7 million tons to 1 million tons in 1987 to ensure that there are no budgetary costs of the sugar program.

Mr. Amstutz stated there are two short-term issues:

1. How should the 1 million ton quota be distributed? Should we discriminate in favor of CBI countries and other LDCs? and

2. What sort of compensation can we offer to CBI countries and other LDCs?

He stated that there is also a longer term question: how can we reform the sugar program to address the harmful effects on the developing countries?

Mr. Amstutz stated that the Working Group recommended that the Administration not allocate the quota on a discriminatory basis, but instead provide compensation through the Section 416 program. He also stated that the Working Group recommended that the Administration forward legislation that would immediately reduce the loan rate from 18 cents to 12 cents per pound and to provide a transition payment based on 1985 production levels. He cautioned that the legislative proposal could cost as much as $1.7 billion, but that we would have to spend Federal funds to reform the sugar program.

Secretary Lyng pointed out that when the President signed the 1985 farm bill he indicated his disagreement with the sugar program and promised to seek legislative remedies.² He stated that even spending $1.7 billion will not assure passage of legislation.

Mr. Wallis stated that the foreign policy problems of the sugar program are hard to exaggerate. He pointed out that the Dominican Republic is heavily dependent upon sugar exports to the U.S. He noted that reallocating the quota on a discriminatory basis would create very significant foreign policy problems, particularly with Australia. He urged that the quota not be reduced on a discriminatory basis. Mr. Sprinkel expressed his support for the legislative proposal, particularly decoupling.

The Council discussed the legislative prospects for a legislative proposal. Secretary Lyng stated that the issue is one of striking the right balance between the sugar cane and beet growers. Council members stressed the importance of GATT talks on agriculture, noting that sugar is a worldwide agriculture problem.

Decision

The Council unanimously agreed to recommend to the President that he reduce the quota on a non-discriminatory basis, while offering compensation through Section 416 food assistance, and seek legislation that would immediately reduce the loan rate from 18 cents to 12 cents, while providing a transition payment based on 1985 production. The Council agreed that if the President accepted the Council’s recommendation,³ the Administration would announce our intention to propose legislation to reform the sugar program when the 1987 quota is announced on December 15.

[Omitted here is discussion of the report of the Working Group on Agricultural Coordination.]

1. Source: Reagan Library, Stephen Danzansky Files, International Trade Subject Outline, IX (A) EPC—Minutes 10/03/1985–10/09/1985; NLR–733–6–46–3–8. Confidential. The meeting took place in the Roosevelt Room at the White House. No drafting information appears on the minutes.
2. See footnote 5, Document 354.
3. In a December 17 memorandum to the Economic Policy Council, Baker reported that the President had approved the EPC’s recommendations. (Reagan Library, Stephen Danzansky Files, International Trade Subject Outline, I (H) General—Congress 1985; NLR–733–1–13–4–8) The recommendations were based upon the EPC December 5 meeting decision and were put forth in a December 8 memorandum from the EPC to Reagan. (Reagan Library, Stephen Danzansky Files, International Trade Subject Outline, I (H) General—Congress 1985; NLR–733–1–13–3–9)